Fund continues prudent stance as market uncertainties loom
KUALA LUMPUR, 21 November 2016: The Employees Provident Fund (EPF) today reported a quarterly investment income of RM12.32 billion for the third quarter (Q3 2016) ending 30 September 2016, a year-on-year increase of 29.21 per cent from RM9.54 billion in Q3 2015. Investment assets recorded an increase of 4.09 per cent, or RM27.98 billion, to RM712.50 billion from RM684.52 billion as at 31 December 2015.
In announcing the EPF’s Q3 2016 investment performance, Chief Executive Officer Datuk Shahril Ridza Ridzuan said, “Given the overall poor performance in the third quarter of 2015, the improved year-on-year performance in Q3 2016 is accentuated by a low base. Nonetheless, most equity markets recorded an improvement resulting in outperformance in the third quarter this year compared with the corresponding quarter last year.
“Our overseas investment continued to enhance our return during the quarter while non-cash impairments also recorded a significant reduction from last year.”
Non-cash impairments have been recorded by the EPF for its investment, in line with the Malaysian Financial Reporting Standards (MFRS 139). For the quarter under review, non-cash impairments were RM349.59 million, a significant improvement from the RM1.02 billion reported in the corresponding quarter last year.
In Q3 2016, Equities, which made up 41.24 per cent of the EPF’s total investment assets, contributed RM7.02 billion, representing 56.96 per cent of total investment income for the quarter. This was 49.02 per cent higher from RM4.71 billion recorded in the corresponding quarter in 2015. Datuk Shahril attributed the increase in income in the third quarter to the improvement in equity prices mainly in the North Asian and developed markets, which provided opportunities for the EPF to realise higher trading income.
As at September 2016, a total of 49.76 per cent of EPF’s investment assets were in fixed income instruments, which continued to provide consistent and stable income. The Q3 2016 saw fixed income investments generated RM4.52 billion, equivalent to 36.65 per cent of the quarterly investment income.
Income from Malaysian Government Securities (MGS) & Equivalent in Q3 2016 increased 7.21 per cent, or RM131.37 million, to RM1.95 billion from RM1.82 billion in Q3 2015. Loans and Bonds, meanwhile, generated an investment income of RM2.56 billion, compared with RM2.54 billion in Q3 2015.
Investments in Money Market Instruments and Real Estates & Infrastructure each represented 5.19 per cent and 3.80 per cent of the total investment assets, and contributed investment income of RM295.66 million and RM478.22 million respectively in Q3 2016. The Real Estate & Infrastructure asset class provides the EPF with inflation-linked returns in order to achieve real dividend target of two (2) per cent above inflation.
“We remain cautious as uncertainties, further exacerbated by the outcome of the US election, continue to loom large over the performance of global and regional markets as well as against emerging market currencies. Although this is likely to result in foreign exchange gains in the current year for EPF’s investments, moving forward EPF’s cost for overseas investment will increase as investments will be at higher foreign exchange rates. The low interest rate environment will also continue to reduce the return from our fixed income investment as maturing higher yielding bonds will be reinvested at the prevailing low interest rate.
“Given the decline in investment income in the first half of the year and the uncertainties that are expected to remain for the rest of the financial year, it would be a challenge for the EPF to sustain previous years’ returns.”
Datuk Shahril added that the EPF will continue to be guided by its long term investment strategy through the Strategic Asset Allocation (SAA) which has factored in short- to medium-term volatility in the market such as the US presidential election. The EPF also remains focused on delivering real dividend target of at least two (2) per cent above inflation over a three-year rolling period.
The Employees Provident Fund (EPF) is Malaysia’s premier retirement savings fund to help its members achieve adequate savings for a comfortable retirement. This is in line with EPF’s vision to help members achieve a better future and the mission to safeguard members’ savings and deliver excellent services. The EPF has evolved significantly from transaction-centric to a professional fund management organisation with a strong focus on retirement security. The EPF is guided by a robust and professional governance framework when making investment decisions. It continues to play a catalytic role in the nation’s economic growth and seeks to cultivate a savings and investment culture among its members to improve the country’s financial literacy level.